Somerset Council blocked £60m Southwest One outsourcing savings

Somerset Council prevented its troubled Southwest One outsourcing partner from delivering millions of pounds in back-office savings

Somerset County Council prevented its troubled Southwest One outsourcing partner from delivering back-office savings that would have averted the joint venture’s failure, Computer Weekly has learned.

The former Liberal Democrat leader of Somerset Council has meanwhile blamed her Conservative successors for neglecting to make Southwest One (SW1) work, while the council today votes on a £40m programme that includes cuts to services including children's centres, child protection, special educational needs and transport.

SW1 has offered procurement savings of more than £60m since 2009, which would have covered a council budget shortfall that has forced councillors to make cuts in frontline services.

But SW1's terms, set by Somerset Council, prevented it from implementing back-office savings without first having them individually approved by the council.

Computer Weekly has discovered that Somerset blocked SW1's savings plan, yet blamed SW1 for not delivering the savings. The council is now preparing to defend itself in court against compensation claims being made by SW1’s majority owner IBM.

Kevin Nacey, Somerset’s head of finance, said he could not comment about the unapproved savings: "That's what the dispute is about - it's the reason for the court case."

Somerset has contested SW1's claim that the savings were available at all. But independent audit reports concur with claims made in SW1's own published accounts that its earlier proposed savings were not only real, they were approved and implemented by the council.

By the end of 2009, two years into SW1's contract, the outsourcer had already implemented £53m of savings, which it made by combining the procurement power of Somerset and two other public authorities.

SW1 has been unable to implement any more savings since the Conservative Party won leadership of the council in 2009, even though it has had almost £60m of proposed savings on the table every year since.

The Audit Commission's 2010/11 report on Somerset said SW1 had £76.6m savings awaiting Somerset's approval. Some 25% of this was allotted to Taunton Dean Borough Council and Avon & Somerset Police Authority, minor partners in the outsourcing deal. Nearly £60m of savings were promised to Somerset.

SW1 was reprimanded for this shortfall last week, when Grant Thornton, the accountants appointed by Somerset as district auditor after the Audit Commission was disbanded last year, delivered a pre-budget update on its first findings.

Simon Garlick, auditor at Grant Thornton, told councillors that SW1's significant failings had marred their budget plans and the legal dispute had hindered a £40m saving by 2016.

He based his opinion on a December report that said SW1 had only delivered £13m of cash savings and it was supposed to have made £100m by now.

"[SW1] actual savings delivered of £13.03m (as at the end of June 2012) are well below the Council’s contract projections of £100.63m (by 31 October 2012)," he said.

But SW1's own 2011 numbers showed that it had, with the council's approval, delivered £48m of savings in procurement deals that would deliver by the end of its contract in 2017. Another £57m of proposed savings would have more than covered Garlick's £100m shortfall if the council had approved them.

Garlick declined to say whether the numbers demonstrated that the shortfall for which he had reprimanded SW1 - £87.6m - would have been amply fulfilled by the £76.6m SW1 savings the council had not approved. He refused also to say if there was a good reason why the council had not approved the savings. 

A source close to the council, who asked not to be named, said Somerset was preparing to fight IBM's court claim over the unimplemented savings by making its own claim that the savings are fictitious.

Another executive who is familiar Southwest One's numbers, who also asked to remain anonymous, said the proposed savings were substantial and it must be asked why the council did not implement them.

Jill Shortland, who was leader of the council when Somerset outsourced services to Southwest One with IBM in 2007, said her Conservative successors had let the venture fail.

"They've not actually tried to make it work," she said.

"We knew when we first set this up that you had to put both sides together. Part of the job was down to identifying the savings. The other part was driving them through. If you are going to drive out the savings, it’s not just the company - the council have to be doing it as well. You've both got to be working on it together.”

John Osman, leader of Somerset Council, said: "I reject [these] incorrect and politically-motivated attacks."

But he refused to say why his office had stopped approving SW1 savings after his party came to power in 2009.

He said it was a complex matter that could only be explained after the council vote today, which will decide Osman's programme of frontline service cuts, designed to save money where SW1 had failed.

Read more on IT outsourcing